Somebody will have to pay for the broadband revolution

The Broadband World Forum 2010 last month in Paris was pure hog heaven for those industry devotees, like me, who are scarcely happier than when spending three days discussing the merits of VDSL vs. FTTH, LTE vs. WiMAX, CDNs, the network-neutrality issue and the problems posed by “over the top” content players. Sad, I know.

Of course, it is easy to forget when you are inside the industry bubble at the conference that 99 per cent of people don’t even know what a near-mainstream issue like net neutrality is, let alone have the first clue about the pros and cons of the broadband-access technologies the industry obsesses over.

Nevertheless, although the average person might not have been able to follow every nuance of proceedings at the conference, he would – if he listened closely enough – have picked up one major viewpoint being espoused by many major service providers: Broadband is an increasingly undervalued service, and subscribers are not paying enough for it.

Avoiding commoditization

Of course, the experienced executives working this line on stage at the conference were far too media-savvy to express this view in any quotable way, but their meaning was crystal clear nonetheless.

The key argument was that subscribers have begun viewing broadband consumption as an unmetered tap that they can leave running wide open for as long as they like. Operators argued that subscribers were being protected from reality by the unlimited-data packages – offered mainly to fixed-line broadband subs but also to some mobile-broadband subs – that had helped convince them that they can access as much data as they like for a single flat fee.

Many top operator executives argued forcefully that operators had to fight back to stop this mentality from becoming permanently entrenched in subscribers’ thinking and to help subscribers realize the actual value of broadband data provision.

However, the only way to do that is to do what many mobile-broadband operators are already doing: back away from their unlimited offerings and reintroduce capped plans that help bring a tiering mechanism back into play. Under such a system, subscribers wanting to access ubiquitous high-quality content and unlimited data – especially in the form of HD video – would pay higher prices than those who do not need seamless high-quality connectivity and are not going to be downloading huge volumes of HD video.

The business model

This line of thought has emerged from a pretty logical position as far as the broadband-network operators are concerned: Their networks – on both the fixed and mobile sides – are being asked to supply an ever increasing amount of data to a subscription base that expects a cut-price all-you-can-eat deal.

As a result, mobile broadband operators have already seen their ARPUs fall dramatically while fixed-line broadband players are struggling to maintain theirs – a situation that operators say is unsustainable if they are to maintain their current network-investment levels.

Of course, the other long-time bugbear for service providers regarding getting a return on their heavy investment in high-speed networks is that subscribers are drowning networks with over-the-top video content, largely from US content providers, that provides no revenue to network operators.

The operators seem to be figuring that since Apple, Google, Hulu et al are hardly rushing to compensate them for the strain they are putting on their networks, the only choice they have – for the moment, at least – is to earn greater revenues from subscribers who place the heaviest loads on the network.

The investment angle

Although reluctant to say so in front of the many vendors among their fellow delegates, many operators said that while the current business model stays in place, they find the prospect of upgrading their FTTH/B networks to speeds above 100Mbps deeply unappealing.

“What’s the point in our offering subscribers even-faster access speeds?” a senior executive from a high-profile Asia Pacific broadband operator asked Informa Telecoms & Media. “All that does is make it even easier for other people to sell content to our subscribers. That’s not a very appealing prospect for us.”

The whole issue of OTT content was, quite predictably, a hot topic during the conference. But the fact that the event was dominated by telcos and vendors – the only executive from an OTT player scheduled to be there (a representative from Google) was unable to make it because of transportation problems – meant that the debate was somewhat one-sided.

Mobile broadband operators at the event were united in their view that net neutrality over mobile is, in the words of one Gulf-based operator, “a complete joke.” But fixed-line operators whose networks don’t have the same capacity problems acknowledged that their battle against net neutrality was a much trickier proposition.

Fixed-line broadband operators – perhaps somewhat hopefully – generally agreed that content providers would ultimately be forced to pay network operators some form of carriage fee for accessing last-mile subscribers. But given the political and technical complexities involved, this situation seems an awful long way from being resolved.

Of course, the OTT issue is made even more complex by the recent arrival of connected TVs and Google TV’s entry into the market. But although many operators remain fearful of the entry of these services, others are less concerned.

“Anyone can give content away for free,” one leading Asia Pacific IPTV-platform CEO told Informa. “It is making money from it that is the hard part, and I don’t see how these [OTT] guys are going to be able to do that.”

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One comment

  1. Avatar Amit Agarwal 17/11/2010 @ 5:58 pm

    I think apart from Operators finding ways to make money from this investment (I am assuming it will have to come from network operators, though there are other funding options as well if one wants to make it completely a utility industry), which I will talk little later, regulators will have to make it attractive for operators to become more innovative. I think operators should be given the flexibility of segregating the traffic based on priority, quality of service, customer type and some other parameters. If this could be done, I seriously believe that operators could fund this completely themeselves. Convergys helps operators around the world to innovate around different pricing models based on all the parameters. Please visit http://www.convergys.com/smartrevenue for more details.

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